219 Days ’til 40: Credit Craze???

17Jul

When I was on the East Coast last spring I kept seeing signs similar to the one above – announcing “Guaranteed Credit Approval.” Hmmmm, I wonder what sort of percentage they charge for guaranteed credit? I saw these signs on everything from department stores to automobile lots to trailer parks. Why, oh why is credit everywhere and why is it so easy to get?

As a whole I do not like the idea of credit. I am concerned that if I do not have the money to pay for something today then I probably also will not have it tomorrow. I am also concerned as to society’s inability to differentiate between a “need” and a “want” when pursuing credit options. If a person needs a car to get to work, it is a legitimate need – that may mean they need to take out a loan. Yet, they need to keep in mind, they need a car to get to work, but do not need a brand new SUV. A modest car is appropriate and okay. Medical debt is something a necessity, particularly with health insurance limiting coverage and so many Americans completely uninsured…… Yet, it amazes me when people go into debt to purchase a pair of designer shoes or a special purse or even a birthday present for a loved one. We need to be careful and understand that debt is a scary beast we want to avoid.

My partner and I have a very strong rule in our home – we do not spend money on anything if it cannot be paid off at the end of the month. We have no credit card debt. In fact the only debt between us is our mortgage and an old student loan of mine. We drive a car that is over 11 years old – it is not so pretty, but it runs beautifully and we own it. I am guessing we will be able to drive it at least another ten years if we take decent care of it. Yes, a shiny new car would be fun, but definitely not necessary.

In our home we have seen room for improvement. We do not spend money we do not have, but we also purchase things we do not need. This is a problem both with spending and also with the limited space in our apartment. We continue to challenge ourselves to not purchase anything unless we are willing to get rid of one item in exchange. This takes practice and we are not so great at it, but are always striving to get better. We have so much “junk” in our home, most of which we do not really need. I want to work to purchase less junk and instead spend money on family adventures or special bonding experiences (theme parks, trips, etc.) Or better yet, just save!

It is my hope that we will be able to be frugal enough that we can work to pay our mortgage off early. Then we will need to concentrate on saving for retirement. Gone are the days when we expect to live a wonderful old age on our own retirement and our inheritance – there is no inheritance for either my partner or myself – we need to plan accordingly. At this point it is my main desire to put away enough money that we are not a burden to our children in our old age. I worry because one figure I heard said that we will need 80% of our current monthly budget when we retire – I know of very few people who are able to put away enough today to maintain 80% of their current budgets when they retire. I like to think I will need less money, as my mortgage will be paid off and the kids will be out of the house…. but with inflation, I suppose you never know. My question is, “how on earth can we really save that kind of money for retirement?” If that is what we really need, are we heading towards a generation of growing geriatric poverty?

Today, 219 days ’til 40, I am conscious of my spending and my saving. I will not buy into the credit craze and will challenge myself to question what I am spending and why.

23 responses to “219 Days ’til 40: Credit Craze???”

I like the idea of getting rid of one item if you are going to buy something new. I might put that forward as an idea ot my daughter!
It’s hard to know how much we will need in our old age – apart from inflation, it depends on your health, interests, number of grandchildren and any number of other permutations.
Like you I want to pay my mortgage off as early as possible. Especially at the moment with interest rates being so low on savings, it makes sense not to be paying more than necessary on interest rates on the property. Good luck :)

Yes, I still need to work on it…. today I brought two shirts home and did not get rid of anything, but will challenge myself to do so in the next few days. The mortgage, we hope we can get it payed off in a reasonable amount of time and I refuse to refinance (my parents refinanced their entire life and my mother STILL has a mortgage to this day – one day I will make it so we have no mortgage!!!) :)

You and your partner are wise beyond your years. Just a thought – it may not be effective to pay the home off early, taking the interest deduction into account (I’ve been a financial advisor for 45 years). I would invite you to do the math.

Very good point – I agree…. right now we want to pay off the mortgage enough to at least lower the monthly payments so that if we ever move a renter could cover the mortgage costs…… as for the rest, we will have to calculate if it is worth it to pay it all off early (after we pay it down).

Of course you are looking at statistics that can be manipulated any way a statistician wants them to be manipulated (for whichever “client” he/she are working for at the time…) what I am trying to say there is that “studies” are paid for by clients most of the time. Many of these studies that say things like “red wine is good for you” are actively paid for by the red wine industry. I dare say that these figures are being touted by banks and financial institutions and especially superannuation funds (or whatever the American equivalent is called over there). They are not beneath inciting community fear over their future to get you to inject your meagre savings into their behemoth schemes to further their own ventures. We have to stop looking at the mainstream economy if we are ever going to be happy. It’s based on consumerism at all costs and propping up an economy built on maintaining profits at all costs. This is totally unsustainable and can’t be maintained. What we all need to be doing is making sure that we don’t have debt (well done on that front by the way :) AND we need to be making sure that we are able to meet our basic needs rather than prospective skiing trips to Italy. The world is a rapidly changing place and a small vegetable garden may just be more secure and pertinent to most of the worlds population than that massive great 4 x 4 out in the driveway. It would seem that most of our children are going to inherit what we have done to the earth and with the wayward spending that we are actively encouraging, most of them appear to be set on inheriting the debts (sins?!) of their parents along with it! We talked about third generation of entitlement but imagine the poor 4th generation of poverty and debt! We don’t want to do THAT to our children!

Yes, so very very true. Our economy and, frankly, the whole reality of where capitalism is heading, is very scary. You are also correct that we have to look at our needs, and not luxuries (like those Italy trips!) Yes the 4th generation of poverty is on its way due to the disgusting ways of spending. I am worried because my generation is stuck worrying about paying for both our parents old age and our own old age and that is a great pressure, mostly due to the improper planning of our parents…… so much for inheritance, I am just hoping to keep my mother and my partners parents out of too much debt without killing our finances in the process.

I have been thinking about what you were saying about having to preserve 80% of our current monthly budget to live on and realised that if we continue to live like we do (familes set aside from each other) this is totally untenable and perhaps we will be dragged kicking and screaming back to integrated family units where parents end up living with their children etc. Perhaps something good will come of all of this and we will relearn the importance of communities, sharing and families? Who knows :)

If there’s guaranteed credit, they’re happy to take on bad credit risks, so there must be high rates of interest. That’s precisely what led to the 2008 crash.

Credit can certainly be useful. Say you’ve been unemployed but have just landed a quite well-paid job somewhere distant. Maybe you own a house, but moving is expensive. You may well need new clothes. Maybe you got rid of the car but now need it – or the car breathes its last just when you need it. In this case you need money up-front but have every reason to expect to be able to pay it back soon.

However, credit on a large scale, whether it’s borrowing by individuals, companies or governments, depends on the assumption that in the long run the economy is growing and there will be more money and other resources around in ten years’ time than now, more in a hundred than ten. It was relatively little used until long-term growth got going in the 18th century in Europe and the Americas. The growth assumption may no longer be valid.